<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
-------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________to___________
Commission File Number 0-11268
THE CLARIDGE HOTEL AND CASINO CORPORATION
(Exact name of registrant as specified in its charter)
New York 22-2469172
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Indiana Avenue and the Boardwalk
Atlantic City, New Jersey 08401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 340-3400
------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of each class of the Registrant's Stock is as
follows:
Number of Shares Outstanding
November 1, 1994
----------------
Class A Stock 5,054,282 (After deducting 8,218 shares of
Treasury Stock)
<PAGE> 2
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
----------------------------------------------------------
Index to Form 10-Q
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Introductory Notes to Consolidated
Financial Statements 3
Consolidated Balance Sheets at
September 30, 1994 and 1993 and
December 31, 1993 4
Consolidated Statements of Operations
for the three months ended September 30,
1994 and 1993 5
Consolidated Statements of Operations
for the nine months ended September 30,
1994 and 1993 6
Consolidated Statements of Cash Flows
for the nine months ended September 30,
1994 and 1993 7
Notes to Consolidated Financial
Statements 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 14
PART II. OTHER INFORMATION
Item 6. No information is provided
under this Section as the answers to Items
1 through 6 are either inapplicable or
negative.
<PAGE> 3
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
----------------------------------------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Introductory Notes to Consolidated Financial Statements
- - -------------------------------------------------------
The accompanying consolidated financial statements have been prepared by
The Claridge Hotel and Casino Corporation ("Corporation") without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of management, these financial statements contain all adjustments
necessary to present fairly the consolidated financial position of The Claridge
Hotel and Casino Corporation and its wholly-owned subsidiaries, The Claridge at
Park Place, Incorporated ("New Claridge") and Claridge Gaming Incorporated at
September 30, 1994 and 1993 and December 31, 1993, and the results of its
operations for the three and nine months ended September 30, 1994 and 1993 and
its cash flows for the nine months ended September 30, 1994 and 1993. All
adjustments made are of a normal recurring nature.
Although management believes that the disclosures included herein are
adequate to make the information contained herein not misleading, certain
information and footnote disclosure normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted. It is suggested that these financial statements be read in conjunction
with the financial statements and the related disclosures contained in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1993
filed with the Securities and Exchange Commission.
The results of operations for the three and nine months ended September
30, 1994 and 1993 are not necessarily indicative of the operating results to be
expected for the full year. Historically, the gaming industry in Atlantic City,
New Jersey has been seasonal in nature with peak demand months occurring during
the summer season.
<PAGE> 4
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
----------------------------------------------------------
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1994 1993 1993
------------- ------------ -------------
<S> <C> <C> <C>
ASSETS
- - ------
Current Assets:
Cash and cash equivalents $ 38,684 5,193 6,428
Receivables, net (including
$13,163 and $11,611 at September 30,
1994 and 1993, respectively
and $12,176 at December 31,
1993, due from the Partnership) 14,355 13,339 12,716
Other current assets 7,851 4,204 4,257
-------- -------- --------
Total current assets 60,890 22,736 23,401
-------- -------- --------
Gaming equipment, net 8,678 4,225 4,354
Long-term receivables due from the
Partnership (note 3) 116,642 115,494 116,391
Intangible assets and deferred charges 3,750 651 235
Other assets 3,134 3,232 2,891
-------- -------- --------
$193,094 146,338 147,272
======== ======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving credit line borrowings (note 4) $ -0- -0- -0-
Current installments of long-term
debt (note 7) -0- -0- 3,530
Accounts payable 3,797 2,509 3,262
Loan from the Partnership (note 5) 3,600 3,600 3,600
Other current liabilities (note 6) 29,085 28,161 28,696
-------- -------- --------
36,482 34,270 39,088
-------- -------- --------
Long-term debt (note 7) 85,000 35,259 31,312
Deferred rent due to the Partnership 34,126 36,342 36,971
Deferred income taxes (note 9) 7,578 6,103 5,724
Other noncurrent liabilities (note 8) 20,000 20,000 20,000
Stockholders' equity:
Common stock 5 5 5
Additional paid in capital 5,048 5,048 5,048
Accumulated earnings 4,855 9,311 9,124
Treasury stock, 8,218 Class A Shares at $-0-
cost at September 30, 1994 and 73,963 Class A
shares at $-0- cost at September 30, 1993
and December 31, 1993, respectively -0- -0- -0-
-------- -------- --------
Total stockholders' equity 9,908 14,364 14,177
-------- -------- --------
$193,094 146,338 147,272
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
----------------------------------------------------------
Consolidated Statements of Operations
For the Three Months Ended September 30, 1994 and 1993
(in thousands except per share data)
1994 1993
-------- --------
Revenue:
Casino $ 47,705 43,096
Hotel 3,651 3,703
Food and beverage 5,757 5,103
Interest from the Partnership 4,532 4,476
Interest, other 396 46
Other 769 763
-------- --------
62,810 57,187
Less promotional allowances (note 2) (5,488) (4,790)
-------- --------
Net revenues 57,322 52,397
-------- --------
Costs and expenses:
Casino 25,610 21,901
Hotel 722 741
Food and beverage 3,029 2,449
Other 1,041 1,013
Rent expense to the Partnership 9,064 8,544
Rent expense, other 384 431
General and administrative 7,704 7,064
Gaming taxes 3,800 3,437
Reinvestment obligation expense 1,273 183
Provision for uncollectible accounts 147 149
Depreciation and amortization 729 369
Interest expense 2,613 1,080
-------- --------
Total costs and expenses 56,116 47,361
-------- --------
Income before income taxes 1,206 5,036
Income tax expense 483 2,014
-------- --------
Net income $ 723 3,022
======== ========
Net income per share (based on 5,054,282 and
5,007,832 weighted average shares outstanding
for the three months ended September 30, 1994
and 1993, respectively) $ .14 .60
======== ========
See accompanying notes to consolidated financial statements.
<PAGE> 6
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
----------------------------------------------------------
Consolidated Statements of Operations
For the Nine Months Ended September 30, 1994 and 1993
(in thousands except per share data)
1994 1993
--------- ---------
Revenue:
Casino $ 117,224 120,331
Hotel 8,485 8,829
Food and beverage 13,948 14,250
Interest from the Partnership 13,427 13,564
Interest, other 1,080 124
Other 2,063 2,226
--------- ---------
156,227 159,324
Less promotional allowances (note 2) (12,954) (12,388)
--------- ---------
Net revenues 143,273 146,936
--------- ---------
Costs and expenses:
Casino 67,133 62,402
Hotel 2,310 2,407
Food and beverage 7,845 7,881
Other 2,890 3,018
Rent expense to the Partnership 26,854 25,919
Rent expense, other 1,149 1,289
General and administrative 22,178 20,997
Gaming taxes 9,345 9,598
Reinvestment obligation expense 1,568 516
Provision for uncollectible accounts 375 440
Depreciation and amortization 1,701 1,063
Interest expense 7,352 3,165
--------- ---------
Total costs and expenses 150,700 138,695
--------- ---------
Income (loss) before income taxes (7,427) 8,241
Income tax expense (benefit) (2,971) 3,296
--------- ---------
Net income (loss) $ (4,456) 4,945
========= =========
Net income (loss) per share (based on 5,029,598 and
5,044,077 weighted average shares outstanding
for the nine months ended September 30, 1994
and 1993, respectively) $ (.89) .98
========= =========
See accompanying notes to consolidated financial statements.
<PAGE> 7
THE CLARIDGE HOTEL AND CASINO CORPORATION AND SUBSIDIARIES
----------------------------------------------------------
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1994 and 1993
(in thousands)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,456) 4,945
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,701 1,063
Deferred rent to the Partnership (2,216) (2,554)
Deferred interest receivable and
discount from the Partnership (850) (739)
Reinvestment obligation expenses 1,568 516
(Gain)/loss on disposal of assets 58 (41)
Deferred income taxes 1,475 775
Change in assets and liabilities:
Receivables, net, excluding current
portion of long-term receivables 171 219
Other current assets (3,647) (906)
Accounts payable 1,288 1,412
Other current liabilities 924 2,048
-------- --------
Net cash flows provided by (used in) operating activities (3,984) 6,738
-------- --------
Cash flows from investment activities:
Increase in intangible assets and deferred charges (3,527) (72)
Additions to gaming equipment, net (5,819) (1,322)
Additions to other assets (1,470) (1,456)
Proceeds from disposition of property 35 42
Increase in long-term receivables (9,240) (1,694)
Receipt of long-term receivables 7,755 7,093
-------- --------
Net cash flows provided by (used in) investment activities (12,266) 2,591
-------- --------
Cash flows from financing activities:
Increase in long-term debt 85,000 -0-
Payment of long-term debt (33,559) (6,659)
Increase in revolving credit line borrowings 7,625 17,600
Payment of revolving credit line borrowings (9,325) (18,600)
-------- --------
Net cash provided by (used in) financing activities 49,741 (7,659)
-------- --------
Increase in cash and cash equivalents 33,491 1,670
Cash and cash equivalents at beginning of period 5,193 4,758
-------- --------
Cash and cash equivalents at end of period $ 38,684 6,428
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 8
Notes to Consolidated Financial Statements
1. Basis of Presentation
---------------------
The financial statements are prepared in accordance with generally
accepted accounting principles. The consolidated financial statements
include the accounts of the Corporation and its wholly-owned
subsidiaries, New Claridge and Claridge Gaming Incorporated. All
material intercompany accounts and transactions have been eliminated in
consolidation.
Claridge Gaming Incorporated was formed on March 16, 1994 for the
purpose of exploring and developing gaming opportunities in other
jurisdictions.
2. Promotional Allowances
----------------------
The retail value of complimentary rooms, food and beverages and other
complimentaries furnished to patrons is included in gross revenues and
then deducted as promotional allowances. The estimated cost of providing
such promotional allowances to casino patrons for the three and nine
months ended September 30, 1994 and 1993 has been allocated to casino
operating expenses as follows (in thousands):
Three Months Nine Months
------------ -----------
Ended September 30, Ended September 30,
------------------- -------------------
1994 1993 1994 1993
---- ---- ---- ----
Hotel $ 828 706 2,029 1,730
Food and beverage 2,761 2,791 7,602 7,356
Other (Entertainment) 206 194 575 541
------ ------ ------ ------
Total costs allocated to
casino operating expenses $3,795 3,691 10,206 9,627
====== ====== ====== ======
3. Long-Term Receivables
---------------------
Long-term receivables consist of the following amounts due from Atlantic City
Boardwalk Associates, L.P. (the "Partnership"):
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1994 1993 1993
------------- ------------ -------------
(in thousands)
<S> <C> <C> <C>
Expandable Wraparound Mortgage 14%,
maturities through September 30, 2000
(net of $11,445,000 discount and
$12,559,000 discount at September 30, 1994
and 1993 respectively, and $12,295,000
discount at December 31, 1993) $ 73,805 79,705 81,441
Deferred Expandable Wraparound
Mortgage interest receivable, due
September 30, 2000 20,000 20,000 20,000
FF&E promissory notes, 14% 15,851 7,504 6,261
Expansion/Construction promissory note, 14% 6,986 8,285 8,689
-------- ------- -------
$116,642 115,494 116,391
======== ======= =======
</TABLE>
<PAGE> 9
Notes to Consolidated Financial Statements
4. Working Capital Loans
---------------------
Pursuant to the terms of the Revolving Credit and Term Loan Agreement
(the "Loan Agreement"), First Fidelity Bank, N.A., New Jersey (the
"Bank") established a revolving working capital facility, which, prior
to the full satisfaction of the Loan Agreement on January 31, 1994, was
in the amount of $7.5 million. Interest on the working capital facility
borrowings, which was payable monthly in arrears, accrued at a rate
equal to the prime rate plus four percent, as amended effective April 1,
1993 (see Note 7, Long-Term Debt). New Claridge was also required to pay
quarterly a commitment fee equal to .5% per annum of the unused portion
of the revolving working capital facility.
On January 31, 1994, the Corporation completed an offering of $85
million of First Mortgage Notes (the "Notes") due 2002, bearing interest
at 11 3/4% (see Note 7, Long-Term Debt). A portion of the net proceeds
of $82.2 million, after deducting fees and expenses, was used to repay
in full the Corporation's outstanding debt under the Loan Agreement,
including the outstanding balance of the Corporation's revolving credit
line, which was secured by the first mortgage. In conjunction with the
full satisfaction of the Loan Agreement, the Corporation's revolving
credit line arrangement was terminated.
New Claridge's outstanding borrowings on the revolving working capital
facility at December 31, 1993 were $1,700,000.
The amount outstanding on the revolving working capital facility at
December 31, 1993 is classified as long-term debt, due to the repayment
in full on January 31, 1994, in conjunction with the full satisfaction
of the Loan Agreement.
5. Loan from the Partnership
-------------------------
In accordance with the terms of the Restructuring Agreement, on June 16,
1989 the Partnership loaned to New Claridge $3.6 million, which
represented substantially all cash and cash equivalents remaining in the
Partnership other than funds needed to pay expenses incurred through the
closing of the Restructuring. This loan is evidenced by an unsecured
promissory note and is not due and payable until such time as the full
or partial satisfaction of the Wraparound Mortgage and the first
mortgage has been made in connection with a refinancing or sale of all
or a partial interest in New Claridge.
Interest, which accrues at 12% per annum, is payable in full upon
maturity. As of September 30, 1994, such interest, which is included in
other current liabilities, amounted to $2,286,000.
<PAGE> 10
Notes to Consolidated Financial Statements
6. Other Current Liabilities
-------------------------
Other current liabilities consist of the following:
September 30, December 31, September 30,
1994 1993 1993
------------ ----------- ------------
(in thousands)
Deferred rent, current $15,078 15,078 15,078
Accrued payroll and
related benefits 6,508 6,245 5,345
Accrued interest, First
Mortgage Notes 1,665 -0- -0-
Accrued interest due to
Partnership 2,286 1,962 1,854
Auto and general
liability reserves 1,151 1,404 1,346
Other current liabilities 2,397 3,472 5,073
------- ------- -------
$29,085 28,161 28,696
======= ======= =======
The amount of deferred rent as of September 30, 1994 of $15,078,000
represents the maximum deferral allowed in accordance with the Operating
Lease Agreement and Expansion Operating Lease Agreement, as amended. The
deferred rent will become payable (i) upon a sale or refinancing of the
Claridge; (ii) upon full or partial satisfaction of the Wraparound
Mortgage; and (iii) upon full satisfaction of any first mortgage then in
place.
7. Long-Term Debt
--------------
Long-term debt consists of the following:
September 30, December 31, September 30,
1994 1993 1993
------------- ------------ -------------
(in thousands)
11 3/4% First Mortgage Notes,
due 2002 $85,000 -0- -0-
First Mortgage Note, prime
plus 4%, effective April 1, 1993 -0- 33,559 34,842
Revolving line of credit -0- 1,700 -0-
------- ------- -------
85,000 35,259 34,842
Less current installments -0- -0- 3,530
------- ------- -------
$85,000 35,259 31,312
======= ======= =======
On January 31, 1994, the Corporation completed an offering of $85
million of Notes due 2002, bearing interest at 11 3/4%. A portion of the
net proceeds of $82.2 million, after deducting fees and expenses, was
used to repay in full the Corporation's outstanding debt under the Loan
Agreement, including the outstanding balance of the Corporation's
revolving credit line, which was secured by the First Mortgage. In
conjunction with the full satisfaction of the Loan Agreement, the
<PAGE> 11
Notes to Consolidated Financial Statements
7. Long-term Debt (cont'd.)
------------------------
Corporation's revolving credit line arrangement was terminated. Interest
on the Notes is payable semi-annually on February 1 and August 1 of each
year, commencing August 1, 1994.
On October 7, 1991, New Claridge was issued a two year license by the
Commission for the period commencing October 31, 1991. In conjunction
with the relicensing, New Claridge was required to submit to the
Commission by April 30, 1993 a plan to satisfy the balloon payment due
on the term loan on January 1, 1994, pursuant to the terms of the Loan
Agreement, with implementation of the plan by June 30, 1993. The third
amendment to the Loan Agreement was executed, effective April 1, 1993.
The modifications resulting from this amendment included (i) the
extension of the maturity date of the first mortgage loan from January
1, 1994 to December 31, 1996; (ii) an increase in the interest rate to
the prime rate of Marine Midland Bank, N.A. plus four percent (from the
previous prime rate plus one and one-half percent); (iii) an increase in
the mandatory principal payments from $1.2 million to $3 million
annually, payable in equal monthly installments; (iv) an increase in the
maximum annual capital expenditure limitation from $3.5 million per year
to $5 million per year; and (v) an increase in the co-agent's fee to
$70,000 per year. Prior to this amendment, New Claridge was required to
pay a co-agent's fee equal to one-fortieth of one percent of the average
daily outstanding balance of the first mortgage loan. In addition, New
Claridge paid an extension fee of $200,000 upon the execution of this
amendment to the Loan Agreement.
In addition to the mandatory principal payments, New Claridge was also
required to pay quarterly, to the Bank, for permanent application to the
outstanding principal balance of the first mortgage loan, any excess
cash flow as defined in the Loan Agreement.
The total principal balance outstanding on the first mortgage loan at
December 31, 1993 has been classified as long-term debt, due to the
repayment in full of the first mortgage on January 31, 1994, in
conjunction with the full satisfaction of the Loan Agreement.
8. Other Non-Current Liabilities
-----------------------------
Pursuant to the Restructuring Agreement, Del Webb Corporation retained
an interest, which was assigned to a trustee for the benefit of the
United Way of Arizona on April 2, 1990, equal to $20 million plus
interest at a rate of 15% per annum, compounded quarterly, commencing
December 1, 1988, in any proceeds ultimately recovered from operations
and/or the sale or refinancing of the Claridge facility in excess of the
first mortgage loan ("Contingent Payment"), which amount is payable
under certain circumstances. Consequently, New Claridge has deferred the
recognition of $20 million of forgiveness income with respect to the
Contingent Payment obligation. Interest on the Contingent Payment has
not been recorded in the accompanying financial statements since the
likelihood of paying such amount is not considered probable at this
time. As of September 30, 1994, accrued interest would have amounted to
approximately $27.2 million.
<PAGE> 12
Notes to Consolidated Financial Statements
9. Income Taxes
------------
In February 1992, the Financial Accounting Standards Board issued
Statement No.109, "Accounting for Income Taxes". Statement No 109
requires a change from the deferred method of accounting for income
taxes to the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax asset and liabilities
are recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis.
Effective January 1, 1993, the Corporation adopted Statement No. 109 on
a prospective basis. There was no effect on the Corporation's statement
of operations for the nine month period ended September 30, 1993 as a
result of the adoption of Statement No. 109.
The Corporation recorded an income tax benefit of $2,971,000 for the
nine months ended September 30, 1994 which represents the tax benefit
of losses which the Corporation believes will more likely than not be
realized. As of September 30, 1994, the current portion of the income
tax benefit of approximately $3.3 million is included in other current
assets.
10. Claridge License Renewal
------------------------
On September 22, 1993, New Claridge was issued a two-year casino license
by the New Jersey Casino Control Commission (the "Commission") for the
period commencing September 30, 1993.
11. Related Party Transactions
--------------------------
In February 1992, the Corporation's Board of Directors adopted a
Long-Term Incentive Plan (the "Plan") in which certain key employees of
the Corporation and/or New Claridge participate. The Plan provides for
the grant of the 273,938 shares of the Corporation's Class A stock,
which were held as treasury shares of the Corporation, and for the
issuance of 100 Equity Units. The aggregate value of the 100 Equity
Units is equal to 5.41 percent of certain amounts as further defined in
the Plan. Specified portions of the awarded treasury shares and Equity
Units held by participants vest upon the attainment of specific goals as
described in the Plan. The treasury shares and Equity Units fully vest
upon a further restructuring or a change in control as defined in the
Plan. Payment with respect to the Equity Units will only be made (a)
upon the occurrence of a transaction in which substantially all of the
assets and business operations of the Claridge entities are transferred
to one or more entities in a merger, sale of assets or other
acquisition-type transaction, (b) upon termination of employment of any
participant in the Plan within one year after any change in control of
the Corporation occurs, as defined in the Plan, or (c) if the
Corporation pays dividends to its stockholders, if the Partnership makes
distributions to its partners, or if the Corporation or the Partnership
makes certain distributions under the Restructuring Agreement. On April
15, 1992, the Casino Control Commission approved the Plan and the
treasury shares were delivered to the participants. Upon the issuance of
the Notes and the repayment in full of the Corporation's outstanding
debt under the Loan Agreement, 25% of the shares and Equity Units
awarded under the Plan vested. A participant is entitled to vote all
awarded shares whether or not vested in such shares.
<PAGE> 13
Notes to Consolidated Financial Statements
11. Related Party Transactions (cont'd)
-----------------------------------
On July 25, 1993, Shannon Bybee, resigned his position as Chairman and
Chief Executive Officer of the Corporation, resulting in the return to
the Corporation of 73,963 shares of the Corporation's Class A stock,
which had previously been awarded under the Plan. In addition, the
Equity Units held by Mr. Bybee were returned to the Corporation upon his
resignation. Mr. Bybee continues to serve as a member of the Board of
Directors of the Corporation. On April 16, 1994, the shares of Class A
Stock and Equity Units which had been returned by Mr. Bybee were awarded
to certain officers of the Corporation and/or New Claridge.
12. Legal Proceedings
-----------------
In the second quarter of 1994, the Corporation entered into an out of
court settlement of a claim incidental to its business. Although the
terms of such settlement are subject to confidentiality, in accordance
with the terms of the agreement, the Corporation believes that such
settlement is in the best interest of the Corporation and was reached
on a basis which was not material to the Corporation's financial
position. The settlement will be paid in three installments over
three years beginning in 1994.
13. Other Events
------------
On September 26, 1994, the Corporation entered into a letter
agreement regarding a casino management agreement with St. Petersburg
Kennel Club, Inc. ("SPKC"). On November 8, 1994, a definitive casino
management agreement ("Casino Management Agreement") between Claridge
Gaming Incorporated ("CGI"), the Corporation's wholly-owned development
subsidiary, and SPKC was executed.
SPKC owns a greyhound race track located in St. Petersburg, Florida,
which presently conducts pari-mutuel wagering. Pursuant to the Casino
Management Agreement, CGI would receive fees for managing any casino
entertainment facility authorized at SPKC's site.
CGI and SPKC will pursue the legislation, licensing and development of a
casino entertainment facility at SPKC's St. Petersburg greyhound race
track. Additionally, CGI and SPKC have agreed to work with each other
exclusively to pursue other sites for casino entertainment facilities in
the state of Florida, if any, and not, without the consent of the other,
to pursue any casino entertainment projects in the state of Florida
alone or with any other party. Either CGI or SPKC may terminate the
Casino Management Agreement on December 31, 1997 if the licensing of a
casino entertainment facility at SPKC's St. Petersburg greyhound race
track is not accomplished or imminent.
On November 8, 1994, Florida voters rejected a ballot question which
would have authorized up to 47 casinos in the state of Florida including
one at SPKC's St. Petersburg greyhound race track.
In September 1994, the Corporation funded the campaign for the
Proposition of Limited Casinos in Florida by contributing $250,000.
Subsequently, the Corporation made additional contributions totaling
$350,000.
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations for the Three Months Ended September 30, 1994 and 1993
- - ----------------------------------------------------------------------------
The Corporation had net income of $723,000, for the three months ended
September 30, 1994 compared to net income of $3,022,000 for the same period in
1993.
For the three months ended September 30, 1994, New Claridge's "Adjusted
EBITDA" was $7,417,000, compared to $7,490,000 for the same period of 1993.
"EBITDA" represents earnings before interest expense, income taxes,
depreciation, amortization, and other non-cash items. "Adjusted EBITDA" is equal
to EBITDA plus rent expense to the Partnership less interest income from the
Partnership less "Net Partnership Payments," which represent New Claridge's net
cash outflow to the Partnership, and is used by the Corporation to evaluate its
financial performance in comparison to other gaming companies with more
traditional financial structures. Adjusted EBITDA may be used as one measure of
the Corporation's historical ability to service its debt, but should not be
considered as an alternative to, or more meaningful than, operating income or
cash flow.
Casino revenue which is the difference between amounts wagered by and
paid to casino patrons, for the third quarter of 1994 totalled $47,705,000
(including poker, simulcast, and keno revenue) an increase of 10.7% over casino
revenues earned in the third quarter of 1993. Casino revenues earned by all
Atlantic City properties for the three months ended September 30, 1994 were 4.9%
higher than revenues earned during the same period of 1993. The greater increase
in revenues experienced by the Claridge as compared to all Atlantic City casinos
was due to the opening, in late June 1994, of New Claridge's expanded casino
facility, which included the addition of approximately 500 slot machines, as
well as a poker, simulcast, and keno area.
Claridge table games revenue for the third quarter of 1994 was
$11,279,000 (including poker revenue), a slight decrease from table games
revenue earned during the third quarter of 1993 of $11,360,000. Citywide table
games revenue (including poker) for the third quarter of 1994 increased 2.7%
over the same period of 1993. The decrease in Claridge's table games revenue
resulted from a decrease in the "hold" percentage (the win to drop percentage)
to 13.8% in the third quarter of 1994, compared to 14.6% in the same period of
1993. This decrease in the hold percentage was offset somewhat by a 5.1%
increase in table games drop (the amount of gaming chips purchased by patrons )
over the third quarter of 1993.
New Claridge earned $36,177,000 of revenues from slot machines in the
third quarter of 1994, a 14.0% increase over the same period of 1993. This
increase was due to the expansion of New Claridge's casino floor space,
including the addition of approximately 500 slot machines, which became fully
operational on June 30, 1994. Slot machine revenues earned by all Atlantic City
casinos for the three months ended September 30, 1994 increased 5.2% over the
same period of 1993; the average number of slot machines available citywide
during the third quarter of 1994 increased 9.8% over the same period of 1993.
New Claridge offers promotional incentives through its direct marketing
program to its customers based on their casino play, as well as to prospective
customers based on demographic models. During the third quarter of 1994, coin
issued through this program totalled $3,428,000, compared to $2,850,000 in the
third quarter of 1993. In addition, New Claridge offers coin incentives to
patrons arriving by bus. During the three months ended September 30, 1994,
274,000 bus patrons arrived at the Claridge and were issued $3,101,000 in coin
incentives, compared to 240,000 bus passengers and $2,088,000 of coin incentives
<PAGE> 15
in the third quarter of 1993. The increased coin incentive per passenger
resulted from efforts to maintain a competitive position with other Atlantic
City casino operators, which, starting in the second quarter of 1994, increased
the incentives offered in order to increase business levels which had been
depressed due to the severe weather experienced during the first quarter of
1994.
Hotel revenues for the third quarter of 1994 of $3,651,000 were 1.4%
lower than hotel revenues for the third quarter of 1993, resulting from a
decrease in the number of rooms sold (45,400 in 1994 compared to 45,600 in
1993), combined with a lower average room rate ($80 in 1994 compared to $81 in
1993). Food and beverage revenues for the third quarter of 1994 of $5,757,000
were 12.8% higher than the third quarter of 1993, due to an increase in total
covers (meals served) to 568,000 in 1994 compared to 487,000 in 1993.
Total costs and expenses for the three months ended September 30, 1994
of $56,116,000 were 18.5% higher than expenses for the same period of 1993. This
increase was due to costs associated with the opening of the newly-expanded
casino, including direct marketing and advertising programs to increase patron
volume, increased payroll costs resulting from higher staffing requirements, and
increased coin incentive costs, as previously discussed. Interest expense for
the third quarter of 1994 was higher than the same period of 1993 as a result of
the higher long-term debt balance resulting from the completion of the offering
of $85 million of Notes on January 31, 1994.
In addition, during the third quarter of 1994, New Claridge recorded
$1.3 million of expense relating to its investment obligation to the Casino
Reinvestment Development Authority (the "CRDA"), as compared to $183,000 of
expense during the same period of 1993. During the third quarter of 1994, New
Claridge made donations to the CRDA, totalling $3.8 million representing amounts
previously deposited with the CRDA. In exchange for the donations, New Claridge
received credits equal to fifty-one percent of the donations, to be applied to
its obligations commencing after the dates of the donations. New Claridge
recorded expense during the three months ended September 30, 1994 to write-down
the book value of the donated amounts to the amount of the credits received.
The Corporation recorded income tax expense of $483,000 and $2,014,000
for the three months ended September 30, 1994 and 1993, respectively, as a
result of the income earned in those periods.
Results of Operations for the Nine Months Ended September 30, 1994 and 1993
- - ---------------------------------------------------------------------------
The Corporation had a net loss of $4,456,000, for the nine months ended
September 30, 1994, compared to net income of $4,945,000 for the same period in
1993.
Adjusted EBITDA for the nine months ended September 30, 1994 was
$7,883,000, compared to Adjusted EBITDA of $16,785,000 for the nine months ended
September 30, 1993. The decrease in Adjusted EBITDA from last year was due to
the decline in business volume in the first quarter of 1994 due to the severe
weather conditions, as well as a reduction in the second quarter of 1994 as a
result of increased marketing expenditures and business disruption due to the
New Claridge's internal expansion construction.
Casino revenue for the first nine months of 1994 was $117,224,000
(including poker, simulcasting and keno revenues), a decrease of 2.6% from
casino revenues earned in the same period of 1993. Casino revenues earned by all
Atlantic City properties for the nine months ended September 30, 1994, including
poker, simulcasting, and keno revenues, increased 1.9% in comparison to the same
period of 1993. Citywide revenues were adversely affected by severe snow and ice
storms throughout the Northeastern United States in the first quarter of 1994.
<PAGE> 16
New Claridge experienced a greater decline in business volume in the first
quarter of 1994 compared to other Atlantic City casinos due to its dependency on
customers arriving by bus, its focus on the New York and Northern New Jersey
markets and its lack of a covered self-parking facility. In addition, New
Claridge's business volume in the second quarter of 1994 was disrupted somewhat
as a result of the construction of its casino expansion.
Table games revenue (including poker revenue) earned by New Claridge in
the nine months ended September 30, 1994 was $29,588,000, a 6.7% decrease from
table games revenue earned in the same period of 1993. This decrease resulted
from a 2.8% decline in table games drop, combined with a decline in the hold
percentage, to 14.2% during the first nine months of 1994, from 14.8% in the
first nine months of 1993. Citywide table games revenue for the first nine
months of 1994 increased 1.1% over the same period of 1993.
Claridge slot machine revenue for the nine months ended September 30,
1994 were $87,409,000, a 1.4% decrease from the same period of 1993. Citywide
slot machine revenues for the first three quarters of 1994 increased 1.7% over
the same period of 1993. During the nine months ended September 30, 1994, New
Claridge issued $8,277,000 in coin incentives through its direct mail program,
compared to $8,684,000 of coin incentives issued in the same period of 1993. In
addition, $7,001,000 of coin incentives were issued to 616,000 bus passengers
during the first nine months of 1994, as compared to $5,975,000 of coin
incentives issued to 640,000 passengers in the same period of 1993.
Hotel revenues for the nine months ended September 30, 1994 of
$8,485,000 were 3.9% lower than in the same period of 1993, due to a lower
occupancy rate (93.6% in 1994 compared to 94.3% in 1993), combined with a lower
average room rate ($68 in 1994 compared to $69 in 1993). Food and beverage
revenues for the first nine months of 1994 were $13,948,000, reflecting a 2.1%
decrease from the same period of 1993, resulting from a decline in the number of
covers served, to 1,306,000 in 1994 from 1,352,000 in 1993.
Total costs and expenses for the nine months ended September 30, 1994 of
$150,700,000 were 8.7% higher than expenses during the same period of 1993,
resulting in part from increased interest expense due to the completion of the
offering of $85 million of First Mortgage Notes on January 31, 1994. In
addition, costs and expenses for the first nine months of 1994 were higher than
in the same period of 1993, resulting from marketing efforts to increase
business volume and promote the opening of the expanded casino, as well as
increased payroll costs due to higher staffing levels necessary as a result of
the increased floor space. Additionally, general and administrative expenses
of $22,178,000 increased 5.6% over the nine months ended September 30, 1993,
primarily resulting from an out of court settlement of a claim incidental to
New Claridge's business.
The Corporation recorded an income tax benefit of $2,971,000 for the
nine months ended September 30, 1994, which represents the tax benefit of
losses which the Corporation believes will more likely than not be realized.
The Corporation recorded income tax expense of $3,296,000 as a result of the
income earned for the first nine months of 1993.
Liquidity and Capital Resources
- - -------------------------------
On January 31, 1994, the Corporation completed an offering of $85
million of Notes, due 2002, bearing interest at 11 3/4%. The Notes are secured
by a non-recourse mortgage granted by the Partnership representing a first lien
on the Hotel Assets, and by a pledge granted by the Corporation of all
outstanding shares of capital stock of New Claridge. New Claridge's guarantee of
the Notes is secured by a collateral assignment of the second lien Wraparound
Mortgage, and by a lien on the Claridge's gaming and other assets, which lien
will be subordinated to liens that may be placed on those gaming and other
assets to secure any future revolving credit line arrangement. Interest on the
Notes is payable semiannually on February 1 and August 1 of each year,
commencing August 1, 1994.
<PAGE> 17
A portion of the net proceeds of $82.2 million, after deducting fees and
expenses, was used as follows:
(i) to repay in full the Corporation's outstanding debt under
the Loan Agreement, including the outstanding balance of the
Corporation's revolving credit line, which was secured by the
First Mortgage. In conjunction with the full satisfaction of the
Loan Agreement, the Corporation's revolving credit line
arrangement was terminated. The Corporation is currently seeking
to obtain a new line of credit arrangement; however, the
Corporation believes that its current resources are adequate to
fund future obligations as they become due; and
(ii) to fund internal improvements which expanded New Claridge's
casino capacity and resulted in the addition of approximately 500
slot machines, as well as a poker, simulcast and keno area.
Through September 30, 1994, approximately $12.7 million has been
used to fund the costs of this internal expansion, which became
fully operational on June 30, 1994.
The balance of the net proceeds from the offering of the Notes will be
used as follows:
(i) the acquisition of an adjacent parcel of land and
construction on that land of a self-parking facility. In March
1994, New Claridge acquired options to purchase for $7,500,000
two parcels of property adjacent to its existing valet-parking
facility. On June 6, 1994, New Claridge exercised these options,
and deposited $400,000 with the Title Company of Jersey, to be
held in escrow until settlement. In an effort to ensure that site
preparation and construction of the self-parking facility can
commence as soon as possible, New Claridge acquired a leasehold
interest in the property on October 27, 1994. In addition, New
Claridge purchased an assignment of National Westminster Bank
NJ's first mortgage interest in the property on November 3, 1994
for $2,040,000. These acquisitions will give New Claridge
control of the property as of November 16, 1994. The first
mortgage interest will be satisfied by the Mortgagor at
settlement, which is anticipated to occur in January 1995;
(ii) the possible purchase of the Contingent Payment (see Note
8, Other Non-Current Liabilities) granted in 1989 and now held in
a trust for the benefit of the United Way of Arizona. The
Corporation is currently negotiating to purchase the Contingent
Payment, for less than face value, from the trustee for the
United Way of Arizona. The Corporation previously offered to
purchase the Contingent Payment for $10 million, but that offer
was not accepted. Negotiations between the trustee for the United
Way of Arizona and the Corporation are continuing; and
(iii) the potential expansion of the Corporation's activities
into emerging gaming markets. On March 16, 1994, Claridge Gaming
Incorporated was formed as a wholly-owned subsidiary of the
Corporation for the purpose of exploring and developing gaming
opportunities in other jurisdictions.
<PAGE> 18
At September 30, 1994, the Corporation had a working capital surplus of
$24,408,000 as compared to a working capital deficit of $11,534,000 at December
31, 1993. This increase in working capital is attributable to an increase in
cash of $33,491,000 and an increase in other current assets of $3,647,000,
offset by an increase in accounts payable of $1,288,000 and an increase in
interest payable of $1,989,000. The working capital deficiency at September 30,
1993 was $15,687,000. Current liabilities at September 30, 1994 and December 31,
1993 included deferred rental payments of $15,078,000, and a $3.6 million loan
from the Partnership plus accrued interest thereon of $2,286,000 at September
30, 1994 and $1,962,000 at December 31, 1993. These amounts will only be payable
upon (i) a sale or refinancing of the Claridge; (ii) full or partial
satisfaction of the Wraparound Mortgage; and (iii) full satisfaction of any
first mortgage then in place. If these amounts were not included in current
liabilities, the Corporation's working capital surplus at September 30, 1994 and
December 31, 1993 would have been $45,372,000 and $9,106,000, respectively.
The Hotel Assets are owned by the Partnership and leased by the
Partnership to New Claridge under the terms of the Operating Lease originally
entered into on October 31, 1983, and the Expansion Operating Lease, which
covered the expansion improvements made to the Claridge in 1986. The initial
terms of both leases are scheduled to expire on September 30, 1998 and each
lease provides for three 10-year renewal options at the election of New
Claridge. The Operating Lease requires basic rental payments to be made in equal
monthly installments escalating annually up to $41,775,000 in 1997, and
$32,531,000 for the remainder of the initial lease term. Prior to the
Corporation's 1989 restructuring, basic rent expense (recognized on a leveled
basis in accordance with Statement of Financial Accounting Standards No. 13),
was $31,902,000 per year. Therefore, in the early years of the lease term,
required cash payments under the Operating Lease (not including the Expansion
Operating Lease) were significantly lower than the related expense recognized
for financial reporting purposes. Rental payments under the Expansion Operating
Lease are adjusted annually based on a Consumer Price Index with any increase
not to exceed two percent per year. Pursuant to the Restructuring Agreement, the
Operating Lease and the Expansion Operating Lease were amended to provide for
the abatement of $38.8 million of basic rent payable through 1998 and the
deferral of $15.1 million of rental payments, thereby reducing the Partnership's
cash flow to an amount estimated to be necessary only to meet the Partnership's
cash requirements. Effective on completion of the 1989 restructuring, lease
expense recognized on a level basis was reduced prospectively, based on a
revised schedule of rent leveling based on the agreed rental abatements. At
September 30, 1994, the Corporation had accrued the maximum amount of $15.1
million of deferred rent liability under the lease arrangements. The deferred
rent liability will become payable (i) upon a sale or refinancing of the
Claridge; (ii) upon full or partial satisfaction of the Wraparound Mortgage; and
(iii) upon full satisfaction of any first mortgage then in place. Also as of
September 30, 1994, $19.6 million of basic rent had been abated. The remaining
$19.2 million of available abatement is expected to be fully utilized by the
fourth quarter of 1996. Because the initial term of the Operating Lease
continues through September 30, 1998, rental payments after the $38.8 million
abatement is fully utilized will increase substantially to approximately $41.8
million in 1997, as compared to $31.2 million (net of projected abatement) in
1996. However, if New Claridge exercises its option to extend the term of the
Operating Lease, basic rent during the renewal term will be calculated pursuant
to a formula with annual basic rent not to be more than $29.5 million or less
than $24 million for the twelve months commencing October 1, 1998, and
subsequently, not to be greater than 10% more than the basic rent for the
immediately preceding lease year in each lease year thereafter. If New Claridge
exercises its option to extend the term of the Expansion Operating Lease, basic
<PAGE> 19
rent also will be calculated pursuant to a formula with annual basic rent not to
be more than $3 million or less than $2.5 million for the twelve months
commencing October 1, 1998, and subsequently, not to be greater than 10% more
than the basic rent for the immediately preceding lease year in each lease year
thereafter. If the term of both leases is extended under their renewal options,
the aggregate basic rent payable during the initial years of renewal term will
be significantly below the 1997 level.
New Claridge is obligated under its Operating Lease with the Partnership
to lend the Partnership, at an annual interest rate of 14%, any amounts
necessary to fund the cost of furniture, fixtures and equipment replacements.
The Wraparound Mortgage, granted by the Partnership to New Claridge, by its
terms may secure up to $25 million of additional borrowings by the Partnership
from New Claridge to finance the replacements of furniture, fixtures and
equipment and facility maintenance and engineering shortfalls. The advances to
the Partnership are in the form of FF&E Promissory Notes and are secured by the
Hotel Assets. One half of the principal is due on the 48th month following the
advance, with the remaining balance due on the 60th month following the date of
issuance. In connection with the offering of $85 million of the Notes on January
31, 1994, the Corporation agreed to use not less than $8 million from the net
proceeds of the offering to finance certain internal improvements to the
Claridge which were2 funded through additional FF&E Loans. In connection
therewith, the Wraparound Mortgage Loan agreement as well as the Operating
Lease, and the Expansion Operating Lease were amended to provide that the
principal on these additional FF&E Loans will be payable at final maturity of
the Wraparound Mortgage. New Claridge is obligated to pay as additional rent to
the Partnership the debt service on the FF&E Promissory Notes.
The Wraparound Mortgage requires monthly principal payments to be made
by the Partnership to New Claridge, commencing in the year 1988 and continuing
through the year 1998, in escalating amounts totalling $80 million. The
Wraparound Mortgage, which will mature on September 30, 2000, bears interest at
an annual rate equal to 14% with the deferral until maturity of $20 million of
certain interest payments which accrued between 1983 and 1988. In addition, in
1986 the principal amount secured by the Wraparound Mortgage was increased to
provide the Partnership with funding for the construction of an expansion
improvement, which resulted in approximately 10,000 square feet of additional
casino space and a 3,600 square foot lounge. Effective August 28, 1986, the
Partnership commenced making level monthly payments of principal and interest
calculated to provide for the repayment in full of the principal balance of this
increase in the Wraparound Mortgage by September 30, 1998. Under the terms of
the Wraparound Mortgage, New Claridge is not permitted to foreclose on the
Wraparound Mortgage and take ownership of the Hotel Assets so long as a senior
mortgage is outstanding. The face amount outstanding of the Wraparound Mortgage
at September 30, 1994 (including the outstanding FF&E Loans and the $20 million
of deferred interest) was $139.8 million.
If the Partnership should fail to make any payment due under the
Wraparound Mortgage, New Claridge may exercise a right of offset against rent or
other payments due under the Operating Lease and Expansion Operating Lease to
the extent of any such deficiency.
<PAGE> 20
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Claridge Hotel and Casino Corporation
- - -----------------------------------------
(Registrant)
By: /s/ Raymond A. Spera
------------------------
Raymond A. Spera
Executive Vice President of Finance/
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
Dated: November 14, 1994
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME > CLARIDGE HOTEL AND CASINO CORPORATION
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<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<CASH> 38,684,000
<SECURITIES> 0
<RECEIVABLES> 14,355,000
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<INVENTORY> 7,851,000
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<CURRENT-LIABILITIES> 36,482,000
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<OTHER-SE> 9,903,000
<TOTAL-LIABILITY-AND-EQUITY> 193,094,000
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